5 Reasons Why Tesla Is Struggling In China

Tesla
got crushed on Wednesday, partially due to Elon Musk breaking
the news that Tesla sales in China were "unexpectedly weak" in
the fourth quarter.

Echoing
Musk's explanation, Tesla communications chief Ricardo Reyes
told Business Insider that "misperceptions about the ease of charging
Model S were the main reason for the dip" in Chinese
sales.

"To
clear up those misperceptions, we are explaining the ease
and convenience of charging and continue expanding the charging
network in the country," he said in an email.

While Reyes said that "overall
China constitutes a small percentage of our sales for now," the
stakes for Tesla's venture into China look
large. Already the
world's biggest auto market, over 22 million cars were sold there
in 2013 — accounting for over 25% of the global
total.

Former Tesla China chief Veronica Wu said in January 2014 that China would account
for 30 to 35% of Tesla's global sales in 2014. She
resigned in December.

The number of charging stations is indeed increasing. Quartz
reports that the Chinese government has built
19,000 charging sites across China, while Tesla has placed 23 of its Supercharger
stations in 10 Chinese cities.

To ramp up that
infrastructure, Musk
has struck deals with telecom operator China Unicom and real
estate developer Soho China to build over 700 charging stations
in 70 Chinese cities, reportedly giving China the second-largest
charging infrastructure after the US.

In talks with Chinese auto
industry analysts, Business Insider has learned that Tesla has a
host of commercial and cultural hurdles to overcome if it's going
to succeed in the Chinese auto market.

They include:

The early adopters have already bought their
cars. "In any new product intro, you get a lot of
buzz early, where early adopters run out and put their money
down, and then you have a period where it's not new anymore"
explained analyst Bill
Russo, who served as the VP of Northeast Asia for Chrysler
before moving into consulting. "The numbers are always skewed —
the easy sales are the ones you get early on."

The early adopter pool is comparatively small.
"For the people in China who bought the Model S, it's not their
first car," argued analyst Jochen Siebert. "It's their third or fourth
car, the same set of people who would buy a Porsche 911 — there's
only a certain percent of people who want to buy this car."

Early numbers may be inflated by "scalper"
intermediaries. In the same way that scalpers
re-sell football game tickets at a markup, Russo explained that a
scalper economy persists for auto imports in China. "When you
have a limited quantity available, scalpers run in an buy a
quantity of cars early on, they flip them to end users or
buyers," he said. "You see high numbers in the early stage, but
you're not getting a clear run rate until the market reaches
level of maturity."

There's still lots of electric car
anxiety. Siebert says that with any electric
vehicle in China, there's the anxiety of "when and where will I
charge my vehicle." Plus it's harder to do personal charging
stations in the China. Quartz reported that 74% of urbanized Chinese
live in apartments instead of detached homes and "park their cars in shared garages where
parking operators have deemed charging stations a fire
hazard."

The consumption isn't conspicuous
enough. While it seems strange, Siebert say that
one of the biggest complaints about the Model S is that it's not
sufficiently braggable. "When Chinese rich buy cars, they want to
show off," he said. The
Model S is 56.5 inches tall, so it's a fairly small vehicle. He
said that "the car that Chinese love" is the muscular Porsche
Cayenne SUV, which
stands at 67.4
inches. Porsche
sold 37,425 cars in China in 2013, and a full 26,666 of
them were the Cayenne SUV — accounting for over 70% of
sales.

Tesla needs to learn from that.
"The Tesla is an
advertisement, but it’s not tall enough," Siebert said.
"the showoff value is
too low." Tesla has
a better shot with the Model X SUV, slated to arrive in China in
2016, he said. With
those
upward-opening "Falcon" doorsanda 64 inch height, it looks like a stronger bid to catch the
eye of China's newly rich.